Don’t Be Stupid

Many lenders have had the unfortunate experience of negotiating loans with a borrower who was using false, exaggerated, or misleading information to obtain credit. Whether or not the ploy succeeded, the effects are often felt by legitimate borrowers, whose applications are scrutinized with even more suspicion due to the experience. While under normal circumstances there is a natural inclination toward trusting people, be prepared to confirm everything.

Unless actual loan losses have been incurred, many lenders may be hesitant to prosecute loan applicants found to have used false information to obtain their loan. But when they do, they may get assistance from the federal government, who insures depositors and regulates banks.

The FDIC (Federal Deposit Insurance Corporation) is not hesitant about using their resources that are available to investigate any attempt to defraud the government (via the bank) with false or misleading information.

These cases are prosecuted by a U.S. Attorney’s Office, who has unlimited resources to pursue such matters. Most federal prosecutors have nearly perfect conviction rates.

For those individuals who are flippant about the integrity of their business dealings, or who willingly try to obtain loans with inflated or misleading (a/k/a fraudulent) information, these actions can carry heavy penalties. It is a federal crime to submit false information in order to induce a federally regulated lender to provide business financing. If caught in such an attempt, one can be sure of criminal prosecution, and if convicted, may be punished with as many as twenty years of imprisonment and a fine of as much as $1,000,000.

Many lenders now require borrowers to certify in writing the accuracy and completeness of the application information they submit. These covenants acknowledge that the information is provided by the borrower in order to obtain loan approval.

Many lenders also have also begun verifying each borrower’s personal and business income tax returns with the Internal Revenue Service. There have been many instances of fictitious tax returns submitted to the lender by fraudulent loan applicants, resulting in significant loan losses. Lenders now confirm that the income tax returns submitted with loan applications are the same as those income tax returns submitted to the IRS to report income.